Billionaire Paulson Sticks With Gold Wager as Prices Rebound

Billionaire hedge fund manager John Paulson, who cut his gold holdings by more than half in the second quarter, maintained his bet on the metal over the next three months as prices rebounded.

Paulson & Co., the largest investor in the SPDR Gold Trust, the biggest exchange-traded product for the metal, held 10.23 million shares as of Sept. 30, unchanged from June 30, according to a government filing yesterday. Billionaire George Soros took a stake in the Market Vectors Gold Miners ETF.

Global bullion demand tumbled 21 percent last quarter as investors pulled 118.7 metric tons out of ETFs and similar products, World Gold Council data show. Prices that fell into a bear market in April have rebounded 9.2 percent since reaching a 34-month low on June 28 as purchases of coins and jewelry rose. The metal is still headed for its first annual loss since 2000 as equities rallied and inflation failed to accelerate after Federal Reserve purchases of assets in the debt markets to enhance its policy of easy credit.

“The big sell off we saw earlier this year drove several investors away, and now some players are picking and choosing how they would like to invest in gold,” Peter Jankovskis, who helps oversee $3.5 billion as co-chief investment officer of Lisle, Illinois-based Oakbrook Investments LLC, said by telephone. “The worst may be over, but the outlook remains bearish, and it’s not a sought after sector.”

Gold futures in New York declined 23 percent this year to $1,287.40 an ounce, outpacing the 4.7 percent drop for the Standard & Poor’s GSCI Spot Index of 24 commodities. The MSCI All-Country World Index of equities climbed 18 percent, and the Bloomberg Dollar Index gained 3.1 percent. The Bloomberg U.S. Treasury Bond Index declined 2.3 percent.

Paulson Cuts

Paulson maintained his SPDR holdings after a second-quarter reduction from 21.8 million shares at the end of March. Armel Leslie, a spokesman for Paulson & Co. with WalekPeppercomm, declined to comment on the filing.

Global gold ETP holdings tumbled 29 percent this year, reaching the lowest since 2010 this week, while more than $64 billion was wiped from the assets, data compiled by Bloomberg show. Prices are down 33 percent since reaching a record $1,923.70 in September 2011 as some investors lost faith in the metal as a store of value and amid concern that the Fed will begin trimming its $85 billion in monthly bond purchases.

Paulson’s PFR Gold Fund fell 16 percent in September, bringing the 2013 decline in the $350 million fund to 62 percent, according to a report to investors obtained by Bloomberg News in October.

‘High Inflation’

The risk of “high inflation in the future” makes gold a desirable long-term investment, Paulson & Co. wrote in the report. The view contrasts with Goldman Sachs Group Inc.’s Jeffrey Currie, who has said bullion is a “slam dunk” sell in 2014. In an Oct. 18 report, the bank forecast prices at $1,100 in 12 months. The metal climbed 8.4 percent in the third quarter, the first gain in a year.

“Physical demand helped prices rise, but that has not made gold attractive enough for investors to rush back,” Lance Roberts, who oversees $600 million as chief executive officer of STA Wealth in Houston, said in a telephone interview. “Unless something dramatic and drastic happens, the tide is unlikely to change.”

In the third quarter, Soros Fund Management LLC bought 1.1 million shares of the Market Vectors Gold Miners ETF. The purchases come after the New York-based hedge fund sold its entire stake of 2.67 million shares in the miners ETF in the three months through June 30, along with dumping all of its 530,900 SPDR shares.

Gold Miners

Michael Vachon, a spokesman for Soros, could not be reached by telephone at his office after regular business hours or on his mobile phone.

The world’s largest gold miners were forced to take at least $26 billion of writedowns this year even as they lowered spending plans and fired workers. The Market Vectors Gold Miners ETF fell 48 percent this year.

ETP holdings “need to stabilize to offer better support to prices,” Barclays Plc said in a report yesterday. “In addition to Fed tapering expectations weighing upon investor sentiment, the performance of alternative assets has exacerbated this weakness despite tapering expectations being delayed.”

The metal jumped 70 percent from the end of 2008 through June 2011 as the U.S. central bank bought more than $2 trillion of debt. Fed Chairman Ben S. Bernanke is contemplating how to finish a third round of so-called quantitative easing that has swelled the central bank’s balance sheet toward $4 trillion.

Yellen Testimony

Janet Yellen, the nominee to replace Bernanke in 2014 as chairman, said that the U.S. economy and job market are performing “far short of their potential” and she will ensure monetary stimulus isn’t removed too soon. She commented during testimony yesterday to the Senate Banking Committee in Washington.

Bullion demand fell 21 percent to 868.5 tons in the third quarter, the World Gold Council said yesterday.

Money managers cut their bullish gold bets by 13 percent to 87,689 futures and options contracts in the week ended Nov. 5, U.S. Commodity Futures Trading Commission data show. The net-long positions have more than doubled from this year’s low in June.

“The long-term players continue to look at gold as a hedge against inflation with easing continuing globally,” said Quincy Krosby, a market strategist for Newark, New Jersey-based Prudential Financial Inc., which oversees more than $1 trillion of assets. “In the short term, the focus is on tapering and everything depends on what the Fed’s next move will be.”

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